Smart Tools to Improve Cash Flow and Collections

No business can operate over the long term without generating sufficient cash inflows. Even a profitable firm will struggle if it can’t collect enough cash to fund operations. If cash collections are too slow, there are some great tools that can help you improve the process. When your business faces this challenge, an outside expert can help you address this critical issue.

Understanding Working Capital

Working capital, broadly defined as current assets less current liabilities, is needed to address cash flow and liquidity. In this case, “current” refers to 12 months or fewer. Current assets include cash and anything you expect to convert to cash within 12 months. Inventory and accounts receivable are two current assets that can be sources of cash. You collect on accounts receivable to generate cash and sell inventory to collect cash.

How Much Cash Do You Need?

If you need a system to collect receivables faster, how much cash is enough? How much cash do you need each week or month to operate your business? The answer to that question will be your collection goal for a given time period.

Technology can help you find out your cash needs quickly. As this article explains, Expensify is a mobile app that helps a business process and pay expenses remotely. The app will store your expense payment history. If you need a quick estimate of your firm’s expenses, you can check your Expensify activity.

If you find estimating your cash requirements difficult, an outsourced controller service can help by forecasting your required cash flow. The firm can also help you determine your cash needs and create a plan to collect cash faster.

Implementing Your Collection Plan

Assume that Bob’s commercial plumbing business requires $30,000 a week to operate. Bob’s outsourced controller helps him with this calculation. He realizes that the next step is to implement a cash collection program.

Quickbooks online accounting software offers a variety of reports to track your progress on cash collections. An aged accounts receivable report, for example, will group your receivables together, based on the date of each invoice. This report provides a quick snapshot of how fast you’re collecting receivables.

A lack of manpower can prevent a business from generating more cash flow and profit, as explained in this article. In this case, an outsourced controller sets up a system to generate and review accounts receivable aging reports each week. The controller sits down with company management and documents a formal collection policy. The plumbing firm follows up with delinquent customers using the new policy. Outsourcing this work helps the business collect cash faster.

 


TOP